Remodeling Market Expected to Hold Up Fairly Well

Remodeling spending may be down this year, and again in 2008, but forecasters don’t expect the same sort of weakness that’s been evident in the new construction market. David Seiders, chief economist for the National Association of Home Builders, is expecting a decline of about 1.5 percent overall this year and perhaps another half a percent drop next year.

Chart - Residential Improvements

Speaking as part of an NAHB teleconference on the remodeling market, Seiders based his predictions on expectations for the home building market bottoming out in the second half of this year and slow economic growth overall. Problems in the subprime mortgage market, as well as weakness in the job market, contributed to downward revisions in his predictions for the remodeling market, but he still doesn’t foresee any big fall-off, he said.

The fact that remodeling is not operating far off from its 2006 record level is quite an accomplishment, Seiders noted. “If we get through this soft period for the economy and the real downturn in the housing market, I think you can call it a real success story.”

Some have questioned whether the remodeling market is in “jeopardy,” largely because the new home market is so weak, noted Kermit Baker, director of the Remodeling Futures Program at Harvard University Joint Center for Housing Studies. A larger decline, however, is highly unlikely, because the remodeling market doesn’t have the same sort of inventory build-up issues now affecting new construction. “In remodeling, you don’t go out and build on spec. It’s a more of a just-in-time process.”

Although the remodeling market may not see huge increases soon, Baker suggests there are several reasons to expect long-term growth, including a rental market with pent-up demand and demographic trends.

“Energy retrofits have a lot of potential,” he said, pointing to recent surges in oil prices. This type of spending doesn’t begin to increase right on the heels of fuel price gains, but should become evident over the next three to six years as more homeowners start to feel the impact.

The remodeling industry remains healthy and has a promising future, said Mike Nagel, chairman of NAHB Remodelers and president of Remodel One Inc. Among the market trends he noted were the continued shift toward professional installation, growing demand for products and projects that allow for aging in place, and increased consumer interest in green remodeling. So far, Nagel noted, green remodeling means opting for energy-efficient products primarily.

Baker suggested that one reason the green movement has really started to take hold over the past 18 to 24 months might be “post Katrina energy costs.”